CHAPTER XVI

THEORIES OF THE CAUSES OF CRISES AND CYCLES

Agnostic theories. — Emphasis placed upon the influence of the credit system. —
Attention to the psychology of business men. — Periodicity of commercial crises. —
Theory that banks cause the business cycle. — Critics of the theory that banks
cause the business cycle. — Theory of the self-generating cycle. — Influence of
maladjustments of production.

IN their treatment of commercial crises and business cycles our
early writers were particularly stimulating. It is quite possible
that a few of them had here a better understanding than any of
their English contemporaries. And, certainly, in the analysis
of aggravating factors in the American banking system their
achievements were substantial.
The earlier writers, in America as elsewhere, regarded a commercial
 crisis, not as one phase of a business cycle, but as the
unhappy interruption of a normal trend of business that might
have continued indefinitely had it not been for the unfortunate
circumstances that brought on its collapse. Their observation of
the cycle centered upon its most conspicuous phase — the crisis.
Accordingly, the first attempts to explain crises sought the origin
of each in some particular incidents of the time. No general explanation
 common to all crises was offered ; some writers explicitly
denied that one could be formulated.
A favorite explanation of crises placed the blame upon whatever
 tariff existed at the time. The notion that low duties cause
crises by undermining domestic industry received vogue from
partisanship as well as from plausibility. Henry C. Carey was,

' Roscher seems to be designated by more or less common consent as the outstanding
 exponent of this view. Denying that crises recur at regular intervals, he
said: “The causes of such an economic disease are most numerous. Every circumstance
 which suddenly and largely increases production, or decreases consumption,
or which even disturbs the ordinary course of industry, must bring with it a commercial
 crisis.” Ansichten der Volkswirthschaft (1865), Bd. ii, sec. 35, p. 391. Cited
in E. D. Jones, Economic Crises, p. 35.